Mexican tortilla makers are this decade's Indonesian noodle makers

Reuters reports:

_MEXICO CITY, Feb 23 (Reuters) - Mexican tortilla maker Gruma’s losses on foreign exchange derivatives grew to 11.2 billion pesos ($811 million) in December after the global credit debacle drove the country’s peso to record lows. […]

Gruma said in a stock market filing on Monday that almost all the mark-to-market declines in its derivatives positions were from losing bets against the dollar. […]

Mexican authorities are investigating whether companies investing heavily in derivatives broke rules by not revealing their positions to investors.


This is eerie. It is deja vu. Can you feel the cold hand on your shoulder?

If you can’t, go and buy yourself a copy of this book (previously on JRE in its parallel-universe edition Traders, Guns and Zombies). Read the first chapter, then come back.

This all happened ten years ago. It was exactly like this, except that the country was Indonesia, and the tortilla makers were noodle makers. But the path to ruin was the same: massively leveraged short-volatility bets that an unstable local currency would continue to appreciate, wielded by corporates with no business speculating in FX markets.

Gruma’s Q408 financials make for pretty grim reading. Net loss of 11 billion pesos on revenue of 12 billion pesos (and a net profit last year of 700 million pesos)? Shareholder equity of just 9 billion pesos? Ow. The derivatives information sheet even has a breakdown of their exposures… and surprise surprise, the vast majority of the losses came from “structures”.

Ironically, the slogan plastered across the front page of Gruma’s website reads Strength in a Challenging Environment.